What is strategic risk management?

What is strategic risk management? It is a short corporate governance training guide to a crucial topic in business success.

In the fast-paced and ever-evolving business landscape, risk management experts will know that it’s not just about mitigating threats; it’s also about leveraging opportunities.

This has given rise to strategic risk management (SRM). It’s a holistic approach that aligns a company’s risk appetite with its strategic goals, ensuring that all potential risks are viewed through growth and innovation. 

This guide explains how it works.

Strategic risk management is an advanced approach that involves a deep dive into any risk that may impact an organisation’s business strategy. 

With SRM, it’s not merely about preventing financial losses; it’s also about understanding and managing risks in a way that you can understand them from every angle, including:

• Identifying their nature
• Identifying which parts of your business they impact
• Quantifying them
• Generating scenarios for their potential impact
• Generating detailed plans for addressing them.

The core of SRM lies in its integration into the strategic planning process. It requires your company to thoroughly understand external and internal environments to anticipate potential disruptions or opportunities. Doing so helps you not just survive but thrive in uncertainty.

Common examples include technological changes like AI adoption, shifts in customer preferences, regulatory landscapes, and competitive dynamics.

Traditional risk management often deals with operational or financial risks in isolation, while strategic risk management considers a broader scope. It focuses on risks that are interconnected and can profoundly impact an organisation’s ability to achieve its long-term goals. 

Ultimately, SRM adopts the same approach often recommended for issues like ESG or digitalisation: pursue it as part of your main strategic operations, not as a side project.

Strategic risk management has gained significant traction among forward-thinking companies worldwide. 

Surveys and studies indicate a steady increase in the adoption of SRM practices, especially in sectors highly susceptible to strategic disruptions, such as technology, finance, and manufacturing.

• It can enhance decision-making capabilities. 
• It combines risk assessment with company strategy, ensuring a rounded approach. 
• It promotes resilience through complete awareness, allowing businesses to adapt quickly during sudden shocks. 
• Because of this, it also enables companies to capitalise quickly on positive opportunities. 

• It’s complex. Proper implementation is often resource-intensive, requiring substantial investment in tools, systems, and training. 
• Because of this, smaller organisations may be unable to cope with SRM. 
• It demands a shift in organisational culture towards proactive risk consideration. Some stakeholders might not be used to this and object to it.

Boards play a crucial role in overseeing the strategic risk management process. They need to ensure that risk management is seamlessly integrated into the strategic planning and execution phases, not treated as an isolated activity. This requires a clear understanding of the organisation’s risk appetite and a commitment to fostering a culture that embraces calculated risk-taking for strategic gains. 

Additionally, boards should advocate for continuous risk assessment and adaptation, ensuring that the organisation remains agile and responsive to any changes in the external business environment.

Strategic risk management is an approach that considers risk as a core part of company strategy and analyses every angle of significant risk to gain a complete picture. 

It’s complex but popular due to the strong foundations it gives companies that pursue it properly. 

Ultimately, it allows companies to follow a combined offensive-defensive risk pathway, which can pay off in the long term.